Blockbuster Files for
Bankruptcy

Blockbuster filed for
bankruptcy and will be closing 500 to 800 stores over a 5 months
span. They are doing so in an attempt to reduce the company’s $1
Billion debt load and I have to say this sadden me.

I love Blockbuster. I
didn’t always. I hated that they took out my favorite place to
buy music, and rent movies and games; Sound Warehouse. But I got
over it and since then, I have rented my movies and my games from
them. In fact, I’m a rewards member in good
standing.

So, as a
somewhat loyal customer, I’m saddened to see it have to close so
many stores. However, I’m not surprised. The company has
been losing market share for well over a decade. Even if
they didn’t see it at the time, pay-per-view and the increasing
number of movie channels have been eroding their market share
slowly but surely for years. Many want to blame the success
of Netflix and upstart Red Box, but Netflix filled a different
market place by originally shipping dvd’s to customers, while Red
Box only focused on recent releases. All the while,
Blockbuster became more concerned about the short term profit and
the price of their stock, instead of the quality of their
product.

For starters, Blockbuster could
have focused more on sales. They could have done this by simply
not being greedy, and instead price their products realistically.
Most of the movies for sale were $25, while Wal-Mart sells the
same disk for $20. I just want the dvd, I don’t care if it
comes from a movie store or a grocery store, I don’t want to pay
anymore than I have too.

How about the prices of their
snacks? Ridiculous. On items like their box candy, you’re
paying theater prices. If you are cheap like me, your
buying your candy, popcorn, and cokes on the way back from the
electronics aisle in Wal-Mart.

It really seems to me, they
didn’t take into consideration as to why Blockbuster was so
successful in the first place. Going to the theater to see a
movie is an expensive proposition. The tickets are $13 to $17,
popcorn is $6.50 for a big bucket, $3 for a large coke, $5
dollars for a box of junior mints or whoppers; I usually
get both. So, for just me to go alone to a Theater, and I pretty
much only go to IMAX movies, it’s $36.50. Who goes to the movie
alone? Take a girl to the movies, which used to be the cheapest
thing you could do for a date, and you’re out a hundred bucks,
add dinner and drinks and you could be in for over $200.

So what does Blockbuster
need to do to stay afloat? This is where the planned Chapter 11
filing comes in. Filing for bankruptcy allows them to keep
their creditors at bay while they reduce their overhead. Closing
500 to 800 stores will relieve a tremendous amount of debt by
freeing them from expensive leases and allow them to liquidate
quite a bit of inventory.

Second thing to do is step
up their mail delivery and streaming video presence, they are
definitely behind Netflix in this marketplace but the fight isn’t
over yet and Blockbuster is in a good position to catch up and at
least solidify their share of this open market. Netflix has
a major advantage in the media delivery department because of its
ability to stream to so many different devices. Many of the newer
HDTV’s have Netflix-streaming feature built in; Blockbuster
needs to scramble and do the same. That will actually give them
the advantage in the Mail delivery as Netflix doesn’t have a
store to return disks to if you want a movie while waiting for
the next one in your queue.

I would get rid of the majority
of the DVD back catalogue. Save that for the Mail/Streaming
delivery business. Concentrate the in-store business to
Blu-rays and new releases. Not doing this sooner has been
one of the things that have hurt them. They should start by
reducing the price of their new release movie rentals, including
Blu-rays, to $1.50 per night, or $4.99 for a weekly rental.
In fact, I would suggest charging just one rental rate for all
the movies in the store. And making sure the in-store rental
inventory isn’t older than 18 months.

I would also reduce the game
rental rate as well. In this economy, if you want to move
product you need to stay within a dollar of Wal-Mart.
Reduce the price of your candy popcorn and cokes and you’ll
sell more. Continue to sell movie memorabilia, trinkets,
storage units etc. Blockbuster should be a unique
experience. Maybe even give store managers more autonomy on
how to run their stores, allowing them to tailor each store more
to the community around them. This will get rid of the corporate
feel and allow them to trim down some of the more expensive
middle management types.

Definitely continue the rewards
programs. They cost 10$ a year and the customer gets a free
in-store rental every month, plus they earn a free rental by
renting; consumers love that sort of thing.

Here’s some stats I
gathered:

Blockbuster Total Access= disks
at a time : 1 = $11.99, 2=$16.99, 3=$19.99.

Program(s) include in store
return/exchange up to 5 disks, Blu-ray disks included free.
Xbox360, PS3, Wii games by mail included. Steaming
content online - computer only